To Taper or Not to Taper, That is the Question (After a Weak Jobs Report)

The August jobs report threw a monkey wrench into the taper camp. The below-consensus headline number, 169,000 jobs created, wasn’t as jarring as the details: more people leaving the labor force, weak wage growth, and most shockingly the revision to the July report, dropping that month’s job creation to just 104,000.

Bloomberg

This report was the last major data-point before the Fed’s September meeting, at which it was widely expected to begin its “tapering” program – the slow winding down of its $85 billion a month bond-buying program, QE3.

Did this morning’s surprising report change the Street’s mind about the taper? Here’s the thoughts from a number of Street economists:

Jay Feldman, director of U.S. economics research, Credit Suisse: A mixed bag overall, but we think the August jobs report passes the test (if not with flying colors) for a taper at the September FOMC meeting.

Ethan Harris, co-head of Global Economics Research, Bank of America/Merrill Lynch: We continue to believe that September is an awkward month for the Fed to taper. Recent data suggest some loss of momentum in the economy and a lot of risk factors are coming to a fore this month. We believe investors should pay much more attention to hard data, such as payrolls, than soft data, such as purchasing managers reports.

Doug Handler, chief U.S. economist, IHS Global Insight: We still believe that the Federal Reserve will begin its tapering process in December. While an analysis of the unemployment rate alone adds credence to an earlier start to this process, a complete assessment of this report suggests that the health of the labor market remains problematic.

Ian Shepherdson, chief economist, Pantheon Macroeconomics: With the Fed clearly in hawkish mood and forward-looking payroll indicators like the NFIB hiring index soaring, we think the Fed will choose to act at the upcoming meeting.

Richard Moody, chief economist, Regions Financial: The August employment report will be of little help to the FOMC as they convene next week. While not precluding a vote to begin dialing down the rate of the Fed’s monthly asset purchases, the August employment report will make it a closer call but we continue to expect the FOMC to agree on at least a modest paring down of the monthly asset purchases.

Kevin Logan, chief U.S. economist, HSBC Research: Given these data, we expect the FOMC to consider its options carefully at the upcoming September meeting. One option for the committee would be to “taper” QE but to also provide a stronger commitment to a low federal funds rate for an extended period.

Millan Mulraine, director of U.S. Research & Strategy, TD Securities: We do not believe that this report will change that dynamics at the Fed in any meaningful way, though it will shift the bias in favor of a lower cut in the purchase size than otherwise, somewhere closer to $10B.

Julia Coronado, chief economist for North America, BNP Paribas: The report is in line with our expectation that the Fed will postpone tapering of QE at the meeting in two weeks. While the bias to taper will remain intact, as stressed by FOMC voter and Chicago Fed President Charlie Evans this morning, the committee probably needs to see more evidence that the economy is on a strengthening path before reducing the pace of asset purchases.

Stuart Hoffman, chief economist, PNC: I still expect the FOMC will likely start to taper by $15-20 billion from its current $85 billion per month purchases of long-term assets at either their Sept. 16-17 or more likely their Oct. 28-29 meeting, and then end them completely in the summer of 2014.

Ted Wiesman, economist, Morgan Stanley: While it’s a closer call, we still expect that Fed officials are becoming confident enough in a sustained turn higher in the economy going forward and dubious enough about the declining benefits of ongoing QE versus rising costs that they will move forward with an announcement of a start to slowing QE on Sept. 18.

Joshua Shapiro,chief U.S. Economist, MFR: We continue to believe that a start to tapering will be announced following this meeting, but that it will probably be modest in size, and the data-dependency of the tapering path will likely be emphasized.

Michael Gapen, chief U.S. economist, Barclays: Our baseline outlook is that the Fed will taper the pace of purchases to $70 billion ($35 billion Treasuries and $35 billion in agency mortgage-backed securities) at its September meeting, and based on our forecast that the unemployment rate will reach 7.0% in Q1 14, we expect the Fed to conclude its purchases in March of next year.